The Office for National Statistics reported that average regular earnings, excluding bonuses, increased by 3.7% compared with the same period a year earlier. Total earnings, which include bonuses, also grew by 3.7%, down from 3.9% in the previous three-month period. Economists polled by Reuters had mostly expected regular wage growth of 3.6%.
The figures arrive as policymakers monitor the economic consequences of the war involving Iran and the resulting rise in energy prices. Higher fuel and transport costs can feed into household bills and businesses’ operating expenses, potentially broadening inflationary pressures if companies pass on costs or workers seek compensation through higher wages.
Bank of England Governor Andrew Bailey has warned that a prolonged conflict could make it harder for the central bank to avoid responding to inflation risks. However, he has also indicated that it remains too early to draw firm conclusions about the extent to which the energy shock will translate into persistent domestic price pressures.
Investors have been anticipating a possible increase in the Bank Rate to 4% next month. A higher policy rate would seek to contain inflation by tightening financial conditions, but it could also increase borrowing costs for households and businesses. The central bank must therefore weigh the risk of persistent inflation against the possibility that tighter policy could weaken economic activity.
Other labour-market indicators point to continuing fragility. The ONS said the overall labour market remained broadly flat, while the number of vacancies recorded its largest fall since the start of the year. Smaller businesses have reported reluctance to recruit amid rising employment costs.
The latest figures do not indicate that wage growth is accelerating sharply. Regular pay growth has remained stable, while total pay growth has eased. The distinction will matter as policymakers assess whether domestic demand and earnings are adding to inflation generated by higher energy prices.
The Bank of England’s next decisions will depend on incoming evidence from wages, prices and employment. For businesses and households, the balance between pay growth, living costs and borrowing expenses remains central to the economic outlook.
